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Let's be honest for a second. Do you want anyone from the SEC knocking on your front door for any reason? The amount that can go wrong in the financial sphere is terrifying, and even more so when you consider the possibilities cryptocurrencies bring to the market. Many people are simply not aware of how to manage digital currencies and what they can and cannot do legally within the cryptocurrency market. This makes the necessity of investment laws for crypto investors ever-growing and ever-present. Before you even open and manage a digital wallet, it’s important to do your due diligence and study up on these laws; otherwise, the possibility you end up in jail may be more real than you might have realized.
Monetary policy is important to discuss when looking at investment laws for crypto investors. When you invest in cryptocurrencies, you’re affecting the economy, even if it is in a small way. Lately, the Federal Reserve has been considering whether or not to change monetary policy because of the effect cryptocurrency exchanges have had on traditional commerce. What the Federal Reserve and the US Treasury don’t want is for virtual coins and tokens to disrupt the value of or take the place of the US dollar. If cryptocurrency trade does start to impose high risk on the economy, the government might impose on this space and either take it over or shut it down completely.
Cryptocurrency investors must consider tax regulations when dabbling in the cryptocurrency trade. The IRS considers virtual currency and initial coin offerings (ICOs) to be property, which means individuals must calculate the gains and losses of these assets come tax season. Some people believe that the IRS is wrong for considering cryptocurrency a property because this false categorization allows people to evade their taxes and hide their crypto funds. Because of this, many people do not report their Bitcoins and alt coins; however, this is illegal, and can get you in major trouble.
There are many illegal activities in the crypto sphere which fall under the umbrella of investment laws for crypto investors to be aware of. First and foremost, money laundering is 100 percent illegal. This is a, seemingly, very common practice with people using blockchain technology, with websites being made specifically for Bitcoin money laundering purposes. Though the laws blockchain will force to change will probably make money laundering harder to do in the future, catching criminals working in this way is difficult to do for the US government. If you do get caught though, you can go to jail for life.
The Securities and Exchange Commission (SEC) considers cryptocurrency to be the same as money when it comes to security crimes. Security crimes include online investment schemes, and, in the future, anti-gambling regulations may use the same regulatory framework. Many people will try to argue that Bitcoin is not money when they commit these crimes, but it will not work in this case, and could lead to significant time in jail if used in this way.
Right now, there aren’t many investment laws for crypto investors to know regarding online gambling. However, there has been a decision regarding the legality of online gambling with legal tender. The FBI indicted three large online gambling companies in 2011 for money laundering, illegal gambling, and bank fraud. These companies accepted fund transfers illegally, and currently, Bitcoin gambling sites are evading online gambling laws by putting funds into cryptocurrency wallets, which cannot be regulated. If this continues, these sites will have to use a financial exchange to exchange their Bitcoins for a fiat currency. This may eventually result in Congress deciding that crypto is be going to be illegal; but long story short, online gambling with or without crypto is NOT something you want to be involved in so long as it is illegal in the state or country you line in.
The Financial Crimes Enforcement Network (FinCEN)
The Financial Crimes Enforcement Network (FinCEN) has decided that cryptocurrency exchanges and people who administer crypto are subject to the Bank Secrecy Act and must register as a Money Service Business. This prevents crypto investors from money laundering and supporting terrorist organizations, organized crime, or drug trafficking. It’s important for crypto investors, at a distribution level, to know that they need to get licensed.
The Consumer Financial Protection Bureau (CFPB)
Another thing related to investment laws for crypto investors is the warning put out by the Consumer Financial Protection Bureau (CFPB), which warns crypto dabblers of the high risk of virtual currency. It warns of hackers, scammers, and how easy it is to lose Bitcoin by losing private keys. It also talks about the lack of insurance by the FDIC that you would get with fiat currencies, the high volatility of cryptocurrency, and the lack of knowledge using this new technology. Overall, this statement says Bitcoin and other crypto investors are investing at their own risk.
Electronic Fund Transfer Act (EFTA)
The Electronic Fund Transfer Act is one of the more important investment laws for crypto investors to be aware of because this act protects users of legal-tender currencies from liability in excess of $50 when their funds are used in unauthorized ways. This act, however, does not apply to cryptocurrency, and may leave you wondering what to do if you've fallen for an exit scam. Many virtual currencies don’t allow chargebacks either, which means transactions can’t be canceled. Again, this proves that crypto is a risky playing field.
Transactions on Tor
Making transactions on the Tor Network is illegal when dealing with Bitcoin. The Tor Network is an anonymous online network where crypto investors go to do illegal things, such as money launder and commit financial crimes. This is not a place you want to be found, because this is where the FBI goes to find and arrest criminals.
The US Congress
In the end, the world digital currencies can be a difficult web to weave. However, the US Congress ultimately has the power to control what happens to the future of cryptocurrencies. As the range of digital currency continues to grow, it’s quite possible that more and more laws will be implemented to regulate, foster, or squash the growth, and the only way to be prepared is to continue to research investment laws for crypto investors as this market evolves. That way, you know you’re never doing anything illegal, and you can have peace of mind as you invest with the cryptocurrency of your choice.